As the impacts of fossil fuels and air pollution on the world’s climate became ever more apparent in 2021, it was easy to miss some of the slower-brewing stories of the past year.
That’s in part because it was a year marked by disruption by climate-related disasters, as many reading this likely experienced personally. We now live in a world that’s 1.1 degrees hotter, where one out of every three Americans lived in a federally-declared disaster area because of a flood, wildfire, or other weather-related catastrophe — over the past summer alone.
But amidst all the turmoil, the push for an energy transition away from fossil fuels drove onward — not always smoothly, but spurred by a powerful mix of environmental necessity and economics. “A new global energy economy is emerging,” the International Energy Agency’s executive director Fatih Birol said as the agency released its December report on renewable energy, which found 2021 smashed records for new solar, wind, and renewable energy installations.
Here, DeSmog looks back at some of the stories from the past year that might propel an even faster transition in 2022, developments and stories whose importance was perhaps easy to miss amid the urgent headlines generated by the climate crisis from day-to-day.
Fossil fuels drove inflation, volatility
For fossil fuels, 2021 was a year that was also marked by a different form of upheaval and uncertainty as natural gas prices in particular soared and plunged amid severe weather and as LNG exports connected U.S. supplies to demand abroad. “The volatility in the natural gas market has been off the charts for several months,” one financial analyst told CNBC in November. Daily natural gas prices, kept low for most of the decade by the rush to drill and frack shale oil and gas, dipped as low as $2.43 per thousand cubic feet (mcf) and spiked as high as $23.86/mcf in 2021, EIA data shows.
Many electricity and gas customers probably felt that all too directly in their wallets, and more broadly as this year’s higher fossil fuel costs became a major driver of inflation. “What people really have not gotten their heads around is how much of the inflation we’re seeing now is driven by energy,” J.W. Mason, a City University of New York economist, told the New Republic in November. “If you remove our reliance on fossil fuels you remove the biggest source of inflation in the economy.”
That’s easy to miss too, in part because of the fossil fuel industry’s response to weather disasters. Last February’s Winter Storm Uri, for example, caused power generation outages over four times larger than any previously seen in the U.S. and left Texas and the south-central U.S. reeling. Backers of the fossil fuel industry sprinted into action, blaming renewable energy and, for example, posting pictures of frozen wind turbines (actually taken in Europe years earlier) on Facebook.
The problem? It was natural gas, far more than wind, that failed to weather the storm, a federal report published in November shows (and solar was barely disrupted at all). The report described the ways that the power plants that burn natural gas froze over and so did the fuel itself, with natural gas getting stuck somewhere between the wellhead and the power plant (the “fossil freeze” DeSmog described in February) driving over a quarter of all the outages in the severe cold. Nearly two out of three power generators that failed to deliver power as Texans froze used natural gas as a fuel, the report found.
Outside of the U.S., Europeans who rely on natural gas for heat or electricity may also be feeling burned amid massive price surges for the notoriously volatile fossil fuel. This year’s spike in prices has been so extreme that they’ve been cited as one reason that the U.S. is seeing higher gas bills. The U.S. Energy Information Administration now projects that the U.S. — which now operates six major export terminals for liquified natural gas (LNG) — will be the world’s largest exporter of natural gas by the end of 2022 — just over five years after the U.S. first began exporting LNG.
Financial regulators, meet climate change
2021 also ushered in new battles over how investors and financial regulators will approach the fossil fuel industry — and those fights are only just getting started.
This year already saw some tables turned when bank regulators the Office of the Comptroller of the Currency, for example, went from considering a Trump-era proposal that critics said would force banks to lend to fossil fuel companies (a proposal quickly tossed by the incoming Biden administration) to calling on banks to address, in the words of Acting Comptroller of the Currency Michael J. Hsu, the “significant risks to the financial system” that climate change poses.
Others, like the Wall Street Journal editorial board, however, continue to insist that the financial risks climate poses are “minimal,” a sign that in 2021, climate denial — which lost a bit of its luster over the past decade in most of the U.S. — remained alive and well at its source: the C-Suite.
Meanwhile, the Securities and Exchange Commission (SEC) has both climate and ESG investment (which aims to focus on environmental, social, and corporate governance issues) in its crosshairs. The SEC is developing a bevy of new rules that will affect how Wall Street thinks about climate change — rules that are likely to stir up a major outcry from the companies that have driven the climate crisis.
As the push for ESG investment from Wall Street has surged, many oil and gas companies are now seeking ways to market themselves as more climate friendly (while still continuing to produce the same fossil fuels).
Indeed, the pressure from Wall Street has driven some of the most interesting corporate announcements this year. ExxonMobil announced in early December that it would go “net zero” in the Permian Basin — the oilfield where ExxonMobil produces about a half-million barrels per day of fossil fuels, about 40 percent of all the oil it draws from the U.S.
As part of that plan, ExxonMobil said it would “electrify its operations,” suggesting it could use wind, solar, and other forms of what it called “emerging” technologies — which might sound a little bit like a tobacco company announcing that it’s going “smoke free,” then explaining that they mean their whole board of directors plans to quit smoking.
Meanwhile, the insurance industry is facing a tab of over $100 billion from weather-related catastrophes in 2021. “Clearly underlying that, something else is going on, of which the most obvious thing is climate change,” Barnaby Rugge-Price, chairman of Howden Broking Group, told Reuters in December. At the same time, though, the insurance industry remains deeply tied to the fossil fuel industry, as DeSmog highlighted in an October investigation that found the majority of the world’s top insurance companies have ties to big polluters — and they also insure fossil fuel projects. That’s drawn the eye of insurance regulators, who are considering new rules covering the ways climate change affects the insurance market at the state and federal levels that could be adopted next year.
In the black?
Overall, higher oil and gas prices this year benefited drillers. “Oil demand, and thus mobility, is back to 95% of pre–COVID-19 levels, and oil has escaped its corridor of uncertainty of $40 to $60/bbl without impeding the energy transition,” accounting firm Deloitte said in its annual wrap up. “Oil and natural gas (O&G) companies couldn’t have asked for more.”
After a bruising 2020, the oil and gas industry, including shale drillers, focused on proving to investors that they were capable of spending less than they earn. Final numbers for the year aren’t in yet, but industry analysts have described “record-breaking free cash flow” over the first three quarters, particularly for the shale drilling industry. They’ve gotten there in large part by slashing spending. Analysts at Rystad Energy found that historically, a group of shale drillers responsible for 40 percent of U.S. oil production had gone from spending on average 130 percent of what they earned each quarter to spending less than half of what they earned.
But it’s possible that this shift towards frugality may have cost producers; 2021 is on track to be the slowest year for new oil and gas discoveries in 75 years, Rystad separately reported.
And the real financial costs from drilling itself — nevermind its climate impacts — are just beginning to significantly affect oil and gas drillers in immediate ways. “Some of the world’s largest oil companies have been ordered to pay part of a $7.2 billion tab to retire hundreds of aging wells in the Gulf of Mexico that they used to own, capping a case that legal experts say is a harbinger of future battles over cleanup costs,” the Wall Street Journal reported in July, describing a ruling that kept oil and gas giants like ExxonMobil, Royal Dutch Shell, and BP on the hook for cleanup costs for abandoned wells after the company that bought the wells, Fieldwood Energy, went bankrupt.
That’s notable in part because on shore, the nation is dotted with millions of abandoned oil and gas wells that were never properly plugged and abandoned – and while the rules for offshore drilling make it harder for companies to walk away, pressure has been growing to ensure that taxpayers aren’t on the hook for the costs of newer abandoned wells onshore too.
The costs of so-called “asset retirement obligations” are not just incidental expenses, even for major drillers. Having to account for the Fieldwood wells alone flipped Apache Oil and Gas, for example, from profits to loss in the third quarter, as they took a $446 million charge for those abandoned wells against earnings of $372 million, highlighting the ways that investors must pay close attention to what happens when wells run dry.
The job ahead
As for oilfield workers, 2021 drove home that their future job prospects in the industry are under threat whether fossil fuel production grows or shrinks. This year saw the deployment of the first fully automated oil and gas rig in the Permian basin. “In October, Houston company Nabors Industries achieved drilling to a depth of almost 20,000 feet with its automated rig, with no help from a crew on the floor to run operations manually,” OilPrice.com reported.
And a major study by the Ohio River Valley Institute revealed that Appalachian communities that allowed fracking in the hopes of attracting jobs and boosting local economies wound up seeing local wages grow far less than the national average, falling populations, and few jobs created per dollar invested.
Meanwhile, the energy transition is already accelerating. 2021 saw 39 gigawatts of wind and solar added in the U.S., a report by S&P Global Market Intelligence found in November. And 2022 will see an additional 71 gigawatts added. Combined, that reaches just over 9 percent of the total roughly 1,200 gigawatts that the U.S. can generate each year, but it’s by far the renewable energy industry’s fastest growth to date.
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